inRoads Research: Applied Shift Share Analysis

April 21, 2016

Economic industries & sHIFT sHARE aNALYSIS:

eXPLORING OPPORTUNITIES OF GROWTH AND INNOVATION

The industrial composition of a community plays an integral role in the formation and implementation of clustered industry supply chains. To gain a better understanding of various industries in Hampton Roads which can be identified as primary engines of economic growth; it is important to identify and apply appropriate industry filters. For our analysis, we will consider industries in Hampton Roads that play a fundamental role in the strength and resilience of our community and have the ability to enhance the business environment from which they operate. As such, with the appropriate resources and encouragement, these industries can provide additional opportunities of growth and innovation within Hampton Roads.

There are several variables that can help determine which industries have a calculable opportunity to serve as a catalyst for enhanced regional prosperity. Traditional metrics used to identify these industries include: the size of the industry (number of jobs) and regional concentration (location quotient). Additionally, these industries target quality, high-paying jobs while supporting growth within their respective supply chains. While not the focus of this report, these structural industries can place an emphasis on being an export-oriented industry. If an industry is export-oriented it will enhance the regional economy by exporting goods or services and importing external dollars into the region.

The Tableau workbook below applies the traditional parameters described and highlights industries within Hampton Roads which meet the particular criteria. The industries displayed were analyzed on a 5-digit NAICS level, currently host 1,700 jobs or more, have witnessed an increase in regional concentration relative to the nation, and pay salaries higher than the regional mean of $ 45,460.

To interpret the word cloud visualization, it is important to recognize that the size of text is relative to the number of 2015 jobs hosted by that particular industry. Additionally, a temperature diverging color index has been placed, where dark red represents hot growth from 2005 to 2015 and light green represents a decrease in growth over the same time period. For example, Management Consulting Services has doubled in employment since 2005 (2,103 to 4,292). As such, the industry title is displayed as moderately sized dark red text. Conversely, Other Non-Depository Credit Intermediation witnessed a decrease in employment from 2005 to 2015 (2,625 to 2,409). While a decrease in employment is not generally viewed enthusiastically, it is important to note that this industry maintained a lower percent decrease in employment within Hampton Roads when compared to the nation over the same time period, thereby increasing its relative concentration.

While it is important to analyze and track industries from a refined NAICS level, it is equally as important to consider how these industries could support business operations within the regional community. By applying various industry filters we have the opportunity to extract a variety of industry characteristics within Hampton Roads. These characteristics can help connect the formation of applied cluster development and supply chain economics. The industries displayed are involved in manufacturing, health & hospital networks, research & development, business & consulting services, and finance & insurance and can support the operations of numerous businesses within our region, nationwide, and around the world.

Shift Share

Now that we have identified industries in Hampton Roads that can operate with a competitive advantage, it is important to determine what factors may be influencing the industry’s regional growth. To perform this analysis we will utilize a more complex economic development methodology known as shift share. Shift share analysis is the process of examining an economy while considering both national growth trends and national growth trends related to a specific industry. Shift share analysis is similar to location quotients in that it highlights the unique industries within a regional economy; however, it explains the industries in terms of job growth rather than total jobs.

When attempting to define industry movements within a regional economy, it is important to consider the movements within the national economy and understand how those movements may be influencing local industry growth. For example, if the national economy is performing well collectively, one could theorize that industries within local communities are experiencing growth as well. In 1963, President John F. Kennedy expressed this philosophy with the simple explanation, “A rising tide lifts all boats.” Shift share analysis incorporates national growth trends into the equation and adjusts employment accordingly. This is known as the National Growth Effect. Similar to the national growth effect, the Industrial Mix Effect represents how much of the industry’s regional growth can be attributed to the growth of the industry on the national level. Both of these effects are an important step in the completion of shift share analysis and represent macroeconomic forces that, unless drawn out, can overemphasize unique regional employment growth.

Now that we have defined the two national forces that may influence regional industry growth, we can draw a more realistic conclusion about how well an industry has performed over a specified timeline. The summation of the national growth effect and the industrial mix effect is what we would anticipate the increase or decrease to be within a particular industry due to the national trends. This summation is known as the Expected Change. The expected change serves as the baseline from which we compare the actual job change over the defined time period.

If a regions actual job change was greater than the expected job change, the region is experiencing a Competitive Effect or Local Effect. A positive competitive effect indicates that the regional industry is outperforming national trends. In other words, the competitive effect explains how much of the change in employment in a given industry is due to some unique regional characteristic.

The shift share visualization highlights the elements described within shift share analysis. As we can see, many of our initially claimed regional industries hold a unique competitive advantage to the nation. After performing this industry analysis we have a better understanding of which industries could bolster additional economic growth in Hampton Roads. To draw out any local industry growth that may not be attributed to unique regional characteristics; we applied the national growth effect and the industrial mix effect to each individual industry. By identifying industries which hold a competitive advantage in Hampton Roads; regional leaders, policymakers, educational institutions, and local authorities have the ability to define a focused economic development strategy geared to bolster economic growth in areas that have not only defined themselves as mature and successful, but could also support emerging industries that have yet to establish themselves within Hampton Roads.

To interact with the visualization below click on a specific industry title, this will draw out the industry's individual shift share analysis. For an expanded view, click, hold, and drag the cursor across several industry titles to highlight the shift share analysis across multiple industries.